Lease vs. Buy Equipment Issue Changes with Section 179

Technology, by its nature, has always changed rapidly. But it seems like today we’re facing an even greater onslaught of technological change, which translates into an even greater financial investment for companies that want to keep pace.

Last year, in a Robert Half Management Resources survey, 41 percent of chief financial officers (CFOs) said that staying current with changing technology is the greatest pressure facing their accounting and finance teams. If that is true for large organizations, you can imagine the challenge of staying current for small and medium-sized companies.

In the past, SMBs stayed current with technology through leasing tech equipment. It was a way to save working capital that would otherwise have been used to pay cash for equipment. Equipment leasing allows for affordable monthly payments that let you use your money for other business expenses, expansions, and more. Also, more vendors now offer lease-to-buy terms, which can make it possible for a small business to make manageable payments on equipment that they will keep longer term.

Buying vs. Leasing Equipment

But what technology equipment lends itself better to leasing vs. buying? I asked this question of Stephen Sheinbaum, founder of Bizfi, an alternative finance company that has originated $1.6 billion in funding for 29,000 small businesses since 2005.

“If you had asked me this question before last December, I think I would have put almost all the tech equipment that a small business might need in the ‘better to lease’ category,” Sheinbaum said. “However, last December Congress changed everything in regards to business equipment: It finally made the Section 179 tax deduction permanent.”

Section 179 deduction

Section 179 is an immediate expense deduction that business owners can take for purchases of depreciable business equipment instead of capitalizing and depreciating the asset. It is offered as an incentive for small business owners to grow their businesses with the purchase of new equipment.

“Small businesses can now buy the equipment they need and write off up to $500,000 in qualifying equipment in the year in which it is purchased, which can significantly lower your business’ taxable profits in the current year.”

The equipment that qualifies includes computers, off-the-shelf software, servers and networking equipment. (Custom software does not, as of now, qualify.)

“The importance of the change to Section 179 can’t be overstated,” Sheinbaum added. “Remember, there were many years in which a small business owner wouldn’t have known the amount of the Section 179 deduction until the year was almost over--it was the proverbial political football. There was no way to do the planning that you needed to grow your business. Now, you know you have up to $500,000 to work with, and Congress wrote the measure so the cap can be adjusted for inflation down the road.”

Sheinbaum suggests making a list of what you think you need and sitting down with an accountant. As he says, “Small business owners need to know there is financing available for both buying and leasing equipment, and that both banks and alternative finance companies can provide it. I can’t think of a better time to be considering new equipment.”

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